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No. 348

July 2007


ISSN 0019-5170



Options and Games

Volker Bieta, Hellmuth Milde*
Wilfried Siebe

In our paper we develop a model for option pricing in illiquid markets. As a result, we shift from the non-strategic model setting to a strategic setting. All parties involved are now assumed to be active players. In contrast, the non-strategic modelling assumes that there is a decision maker playing a game against nature. We introduce the concept of the Nash equilibrium replacing the no-arbitrage equilibrium of the tradition option models. Rocket scientists knowing how to solve differential equations are definitely outdated in this area of modem risk management.

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Efficiency of Foreign Exchange Markets : Evidence from South Asian Countries

Khan Masood Ahmed,
Shahid Ashraf and Shahid Ahmed  

This paper examines the validity of the efficient market hypothesis on the foreign exchange markets of South Asian Countries during the period 1999 to 2004. The descriptive statistics for exchange rates show frequency distributions are not normal. Though the return series on exchange rates are stationary but the ACFs are highly significant at various lags and Ljung-Box (Q) test rejects the joint null hypothesis of zero auto-correlations. The non-parametric Run-test also indicates towards the rejection of the random walk model. The K-S Z-test indicates that the frequency distribution of the underlying series does not tit normal distribution. The BDS-test shows the evidence of non-linear relationship in the return series. Therefore, the South Asian foreign exchange markets in our sample over the period of study are not efficient in weak form.

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Changing Agrarian Status in Himachal Pradesh : Problems and Remedies

M. S. Pathania
G. D. Vashist


The marginal and small holdings in Himachal Pradesh have been continuously increasing over the period. The average size of farm holdings is 1.21 lta. Majority of the farmers have poor resource base and carry on subsistence farming. Keeping this in view, the present study was undertaken to analyse the problems faced by marginal and small farmers and to suggest ways and means for improving their income. Both primary and secondary data were analyzed. The findings of the study have clearly brought out that the large holdings have decreased, while small and marginal holdings increased over the years in the state resulting in higher human labour pressure on agriculture. This trend calls for not only to reduce the increased population dependent on agriculture to lift from subsistence to sustainable level but also to withdraw population from agriculture by opening up alternative employment opportunities. The net sown area and gross cropped area in the state have declined. The cropping intensity on marginal farms was higher than small farms showing inverse relation between farm size and area sown. The farmers leased out their land for cultivation on produce sharing basis followed by fixed kind and money contract, respectively. The produce sharing tenancy was noticed the dominant forth of tenancy. Majority of leased out land transferred was done to OBCs followed by Scheduled Castes and majority of land transferred to tenants from Rajputs and Brahamins. The findings of sample study showed that average farm income ccounted for 32 per cent while 68 per cent was obtained from non-famt activities. Heavy indebtedness, draught, migration, increasing cost of production and low level of adoption of technology were the problems of these farmers. The findings of the sample survey are in conformity with the results obtained at the state level which implies that the maladies which exist at the farm level are identical at the macro level and as such the same remedies would be applicable at micro as well as macro level to stake agriculture sustainable and economically viable. Diversification of agriculture, enhancement of productivity and environmental safety need to be the main areas of thrust. There is also need to change the tenurial act so that land kept fallow by the farmers can be brought under cultivation.

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Technical Efficiency of Rice Farmers in South Eastern Nigeria

C. E. Onyenweaku*
D. O. Ohajianya

This study was designed to measure the level of technical efficiency and its determinants in rice production in South Negeria using a stochastic frontier production function. Mufti-stage random sampling technique was used to select 160 rice farmers using the cost-route approach. The estimated faun level technical efficiency ranged from 17.19% to 93.13% with a mean of 65.06%. The wide variations in the level of technical efficiency indicate that ample opportunities exist for farmers to increase their productivity and. income through improvements in technical efficiency. Credit, education, fanning experience, farm size, membership of farmers associationsv cooperative society, use of improved rice varieties, extension contact, system of production, and timeliness of farm operations were found to be positively and significantly related to technical efficiency. The study found no relationship between age, tenancy status and off-farm employment and technical efficiency in the study area.

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Determinants of Rice Import Demand in Nigeria : A Cointegration and Error Correction Specification

N. M. Nkang , S. O. Abang, O. E. Akpan
E. O. Edet

Nigeria is reputed to have comparative resource advantage in rice production to ensure self-sufficiency. In spite of this, rice imports in Nigeria have represented a good proportion of total food imports over time even with increased government effort to raise domestic rice production. This paper, therefore, estimates the determinants of rice import demand in Nigeria using a dynamic regression model. Specifically, cointegration and error correction model was followed. The results show that short-run changes in domestic rice production, level of external reserves and total import value remarkably shaped rice import behaviour in Niagara during the period under investigation. More interesting is the fact that the error correction mechanism (ECM) indicated a feed back of about 125% of the previous year's disequilibrium from long-run elasticity of domestic production of rice, external reserves, and import value. It is recommended that efforts geared at reducing rice imports in the short-run should not only rely on increasing domestic rice production and/or reducing total imports but should also look at trade agreements between Nigeria and its trading partners as well as restriction of rice imports, at least to a level that will not lead to food insecurity.

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Financial Liberalization with Productive Public Expenditure and a Curb Market

Rangan Gupta*

This paper develops a monetary endogenous growth model of a financially repressed economy, characterized by an Unofficial Financial Market and productive public expenditure, and, in turn, analyzes the effects of financial liberalization on the rate of growth and inflation. Following the current trend in the literature the size of obligatory cash reserve requirement held by the official financial intermediaries is used as the metric for financial repression. Results indicate that financial liberalization, or in other words, lowering of the reserve requirement, is inflationary and growth-reducing. From a policy perspective, the analysis suggest that in an economy characterized by productive public expenditure, if the government ends up repressing the financial sector to a degree where curb market emerges, financial liberalization is not the desired choice of policy and, hence, policy makers should proceed with caution if low inflation and high growth are the major objectives.

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International Capital Flows on India's Economic Growth-In View of Changing Financial Market Scenario

Narayan Sethi*
K Uma Shankar Patnaik**  

Countries with well developed financial markets gain significantly from Foreign Direct Investment (FDI). Given the huge volume of capital flows and their influence on the domestic financial markets, understanding the behaviour of the flows becomes very important especially at time liberalizing the capital account. The study attempts to examine the impact of international capital flows on India's financial markets and economic growth. The study also examines trends and composition of capital inflows, changing pattern of financial markets in view of globalization and suggest policy implication thereof. By using monthly time series data, it is observed that Foreign Direct Investment (FDI) is positively affecting the economic growth, while Foreign Institutional Investment (FII) has negatively affected. Introduction

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